Talking tariffs

Rebuilding after massive hurricanes, floods, tornados, or fires, depending on the scale of the disaster, can impact the supply and demand of construction materials nationwide and increase rebuilding costs.

But these days, there’s another influence on construction costs — tariffs. It’s certainly not a new idea. The United States has imposed tariffs as a revenue-generating border tax since the late 1700s to fund the federal government until they were primarily replaced by income taxes in 1913, when Congress passed the 16th Amendment.

Now, tariffs are making headlines thanks to President Donald Trump, who is embroiled in a tit-for-tat trade war with China and other countries around the world in an effort, he believes, to rebalance trade inequities allowed by past administrations.

Thousands of everyday items imported from select countries worldwide have been slapped with tariffs, from washing machines to electronics to solar panels, but in this construction and development feature, we’re focusing on materials and how increased costs are impacting the bottom line on local building projects.

Importers, such as U.S. companies that order materials, pay the tariffs, and the president believes tariffs on metals are a matter of national security. Increasing costs on foreign-made products, he reasons, will spark U.S. manufacturing and lead to domestic job growth. To some degree, that’s already happening.

A Washington Post article in July (“Trump’s trade war has started. Who’s been helped and who’s been hurt?”) cited a Trade Partnership Worldwide study that projected in increase of 25,000 new jobs in the steel and aluminum industry over the next three years as a result of the tariffs.

But the same study estimates that 16 U.S. manufacturing jobs could be lost for every metal-producing job gained, resulting in over 400,000 net jobs lost.

The U.S. is the world’s largest steel importer, followed by Germany, yet in 2017 steel represented just 1.2 percent of the total goods imported into the U.S. As of June 2018, the U.S. was purchasing most of its steel from Canada (20 percent) according to the International Trade Administration, followed by Brazil (12 percent) and Mexico (11 percent). Russia accounts for 8 percent, while China is not a significant exporter of steel.

Section 232 aluminum tariffs imposed on Mexico and Canada as part of the United States-Mexico-Canada Agreement (USMCA) are likely to remain in place because the trilateral agreement announced Oct. 1 won’t head to Congress before 2019.

In March and June, tariffs on steel and aluminum went into effect, placing a 25 percent tariff on imported steel and a 10 percent tariff on aluminum imports. Manufacturers like Milwaukee-based Harley-Davidson and auto manufacturers reeled, with Ford recently announcing that the tariffs have cost the company $1 billion and will result in layoffs.

Hoping to explore the impact of these national issues on Dane County manufacturers, we quickly learned that this issue is a political hot potato that few companies wanted to touch — at least publicly.

But a couple did go on record — Sean Cleary, at Cleary Building Corp., and Ray Statz, founder of Qual Line Fence Corp. in Waunakee.

Tariff-ic or tari-ible?

Cleary Building Corp. in Verona is a 40-year-old company with 82 offices around the country. Sean Cleary, president, regularly follows economist blogs and media and trade articles to keep a closer ear to the ground on tariff news. His company manufactures and builds a wide range of structures ranging from pole barns and pole buildings for residential, office, or agricultural use, with steel, aluminum, and lumber being crucial components. Business is good, he says, but to understand the present, one needs to understand the past.

America’s steel industry lost ground years ago. Many companies consolidated, and historic stalwarts, like National Steel or Bethlehem Steel, went out of business. Only a handful remain, such as NuCor Corp., U.S. Steel, or Steel Dynamics, Inc.

Tariff rumors started well before implementation in March. “There’s always a lag time,” Cleary explains, but anticipation is enough to drive up prices. “When word comes down that tariffs will happen, domestic companies announce that they’ll raise prices right away and then talk about expanding their capacity.”

That’s a good news-bad news scenario, he says. Some dormant U.S. steel plants have reopened as a result, creating jobs and boosting production, “but it hasn’t brought down the price of steel,” Cleary notes. In fact, over the past year, he’s seen steel prices rise 43 percent on average, but he’s concerned about ancillary industries, as well.

“Fastener companies (e.g., nail manufacturers) are really being affected,” he says, “and we use a lot of fasteners.”